Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

Summary: Microsoft's two biggest cash cows in its second quarter were the Business Division and Server & Tools -- not Windows.

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Windows and Office: They've been Microsoft's two biggest cash cows since... forever.

But in Microsoft's second fiscal 2012 quarter ending December 31, 2011, Windows/Windows Live dropped to No. 3, behind the Microsoft Business Division (home of Office) and Server and Tools. (Last quarter, the Business division was No. 1 and Windows was still No. 2.)

(click on breakout above to enlarge)

Total Microsoft revenues for the quarter were $20.9 billion.

For the past couple of weeks, Microsoft officials had been warning investors that PC shipments were going to be worse than many had expected due to flooding in Thailand. So it's not too surprising that Windows/Windows Live revenues were down six percent and profits down 11 percent.

But Windows' decline was offset by strong performance by the Business Division and Server and Tools, with $6.3 billion and $4.8 billion in revenues, respectively. Strong performances by Office, SharePoint, Exchange, Lync and Dynamics CRM all contributed to the Business Division's bottom line, according to Microsoft execs. Windows Server, SQL Server and System Center all turned in strong sales in Server & Tools, company officials said.

It's worth noting that even though the Entertainment & Devices unit had strong sales but lower profits than the previous quarter. E&D is home of the Xbox and Windows Phone businesses.

GeekWire said that lower net income in this unit came from "the cost of integrating Skype following the  completion of that acquisition, payments made to Nokia related to Windows Phone strategic initiatives, higher Xbox Live royalty costs, and a higher mix of Xbox 360 hardware sales vs. software, which takes a toll on the company’s profit margins."

But back to Windows. While Microsoft execs have said they still believe they can sell millions of more copies of Windows 7 before the big Windows 8 push commences, the next quarter could be a tough one for this unit. (Microsoft officials said they've sold 525 million copies of Windows 7 to date.) There's still no official word when Microsoft will RTM or launch Windows 8, but it's highly, highly unlikely that will happen before March, 2012 -- which is when the next quarter ends. Impact of the Thai floods on PC shipments is likely to continue into Q3 2012, as well, the Softies have said. I'm thinking the Business Division and Server & Tools are likely to carry the day, again, when Microsoft reports earnings next month.

For a company where nearly every strategy decision has revolved first and foremost around Windows, Microsoft is entering a new realm where its biggest financial contributors are outside of its most famous product. Is this a sign of the infamous 'post-PC era,' or just a temporary blip that will change once Window 8 is out? Should be an interesting year, this calendar 2012....

Topics: Operating Systems, Hardware, Microsoft, Servers, Software, Windows

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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57 comments
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  • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

    Maybe yes, maybe no. One thing we know for sure, MS is not putting all of their eggs in the same basket.
    The cloud guy
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      @hakanern
      The vast majority of the actual revenue is between Windows and closely related products and Office and closely related products. So, you are right, MS has more than one income stream. They essentially have two.
      Nathan A Smith
      • Windows' net income is still the top 2

        Revenue is not too useful a stat.
        LBiege
      • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

        @Nathan A Smith
        I don't see it that way at all. You are just grouping business software together. There are tons of different products.
        kstap
      • No they have about 8 cash cows now.

        Pretty soon they'll need a bigger farm
        Johnny Vegas
      • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

        @Nathan A Smith What about WP7, Office for iPad and Mac, and XB360? I think you're selling them a little short (anti-MS?). How much more diversified could they possibly get before you gave them credit? You want them to sell electronic toaster ovens?
        thoiness
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      Yes ... but the problem is that some are fragile eggs.
      john_gillespie
      • RE: Yes ... but the problem is that some are fragile eggs.

        @john_gillespie@...

        This reminds me of a commercial for some kind of "air pillow". In it, there is a demonstration of various pillow materials attempting to "protect" a stack of eggs from a 10 lb weight that supposedly represents one's head. Too bad, three of the four padding materials fail, resulting in smashed eggs.
        fatman65536
  • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

    I can't wait to see what kind of revenue the Windows 8 Market place brings in. If its anything like iTunes or the Android Market, it could trump all of the other divisions and represent a continuous revenue stream over the life of the OS for MS whereas an Office or Windows License would only bring income once. If MS was smart, they would buy Steam and integrate it as its own division like Skype and push it to every copy of Windows 8 as part of SP1 with enterprises having the ability to block or uninstall it.
    Drewidian
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      Right ... I'm sure it will be as cutting edge, exciting and stable as previous offerings. The MS stores will be packed!
      john_gillespie
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      @Drewidian Why would Valve sell the rights to Steam, especially as it gives them the ability to sell directly to consumers while cutting out the middle man, as well as take a cut from other game developers who want to do the same?
      jgm2
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      @Drewidian You do realize that Steam is cross-platform now, right? (Windows, Mac, and a little bit of Playstation). Microsoft would be better off to just buy the Intel AppUp technology that already exists if they went that route, but they're not - they're building the technology from the ground up.
      Champ_Kind
  • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

    If there's no more Windows, how else will Microsoft sell it's other more pricey products (especially all business division products). My view is that Microsoft is transforming Windows into a platform for other Microsoft software and services to easily built on top of it.

    I wonder if there is any development on Bing and other Microsoft online services, it has been very, very quite in the last few months. Maybe a Bing spring refresh is coming?

    Also, the whole industry is going mobile. All the OEM bulk licencing is going to increase and no as many Windows licences sold directly to consumers which may impact the division's bottom line significantly.
    Kit Yeung
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      @Kit Yeung
      They've been doing integration of Bing in to xbox, etc. lately. See the latest marketshare figures.
      kstap
    • Reading problem

      @Kit Yeung
      How does a still healthy third place in any way lead to "If there's no more Windows"?

      Win8 is still Windows!
      Patanjali
      • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

        True ... sad but true.
        john_gillespie
      • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

        @Patanjali rephrase If there's no Windows from to start off with.
        Kit Yeung
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      @Kit Yeung
      Hellooooooooo... Windows IS a platform!!!
      jaykayess
  • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

    I thought MS was going to try and get Win8 out before the holidays.
    ntman2011
    • RE: Windows drops to No. 3 cash-cow status in Microsoft' latest quarter

      @ntman2011 Yes, Holidays 2012 ... likely late summer, early fall 2012 (so likely Q3 2012).
      sirtwist99